Forget measly tax cuts - businesses need government reform

The Gillard government has reneged on its promise to reduce the corporate tax rate by 1% – a cut that was part of the package to secure the Minerals Resource Rent Tax (MRRT). Although this backflip will surely anger the business community, there are far bigger problems affecting the bottom lines of Australian businesses.

Many small business owners cite a strong dollar, growing regulatory burden, and inflexible labour laws as major impediments to their competitiveness. There is not much the government can do about the strength of the dollar, since strong demand for minerals at home and weak financial markets abroad have caused large capital inflows.

But the government can help ease the regulatory burden and increase labour market flexibility.

On regulation, the Productivity Commission has published some meaningful proposals. In last year’s Review of Regulatory Burdens on Business, the commission drew attention to promising developments in the states. Victoria, NSW, South Australia, and Queensland have all implemented Red Tape Reduction Targets.

These targets require departments and agencies to reduce existing compliance costs by a certain value within a specific time period. Most refer to the costs related to paperwork, but in some cases (Victoria, for example), this includes the costs created by delays.

There has been a degree of success with this approach. Victoria set a reduction target of $500 million by 2012. The state estimated that reductions had reached $401 million by July 2010. Perhaps the federal government could implement some ambitious reduction targets of its own.

On labour market flexibility, the fact that the passage of the Fair Work Act did not include an accompanying Regulatory Impact Statement (as is common with many large reforms) has been a major cause for concern.

Though some headway has been made in the simplification of awards, much rigidity still remains.

The retail sector could benefit from a loosening of penalty rate rules and minimum hours for shifts. This would provide some breathing space from the pressures of declining consumer confidence, increased saving, and online competition. Unfair dismissal provisions can be scrapped, or at least tightened, to reduce both the costs arising from claims and the employment risk that new workers now pose.

All these measures are concrete changes the federal government can make to yield significant cost savings for businesses across the board.


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